Residency vs. Domicile

“Place of residency” and “place of domicile” may appear to mean the same thing, but may have different definitions at tax time. The definitions are similar if you have lived in the same place for many years, but if you recently moved to or maintain a second home in a different state, the two terms may be very different.

Delaware follows the IRS definition of “place of domicile” as your permanent legal home which you intend to use for an indefinite period of time. On the other hand, most states define “place of residency” as a place of abode and spending more than 183 days in the state. The key difference is intent, which is dictated by actions. Residency is often viewed as temporary while domicile is viewed as permanent. For example, assume Fred lives in Delaware but moves to New York for a four-month project. His wife and children remain at their home in Delaware. Fred may at some point meet New York’s definition of a resident but because he intends to return to Delaware at the conclusion of the assignment, Delaware is still his place of domicile.

You can only have one place of domicile even if you have more than one home. There are several factors that could determine if someone is domiciled in one place or another. These factors includes voter’s registration, driver’s license, vehicle registration, length of residence and location/relative values of your properties. Since many states are struggling financially, they are also starting to take a close look at things considered “near and dear” to establish place of domicile. For instance, a state may look at where your doctor or dentist is located, where your children go to school, and what organizations you belong to. It is possible to meet a state’s residency requirements and still be considered domiciled in another state. For example, even if Fred’s project gets extended for six additional months and he meets all of New York’s residency requirements, he will still be considered domiciled in Delaware. Fred would have to file tax returns in both states. Most states require that you make a “clean break” and “land in another state” to show a change in domicile.

There are important tax consequences to be considered when residing in one state and being domiciled in another. States have varying rules which could result in having to pay taxes in more than one state. Consideration needs to be given as to whether a tax return has to be filed in each state.